PE67100 | Other partial Exemption issues: The Capital Goods Scheme (CGS): legal basis

Legislation

The legal basis for the Capital Goods Scheme is Part XV of the VAT Regulations, SI 1995/2518, regulations 112 to 116. These set out what items are included, how they are valued, when they come within the scheme, what intervals will apply to them and how taxable use in those intervals will be established.

Scope, valuation and definitions

These issues are well covered in VAT Notice 706/2 Capital Goods Scheme so only additional points are covered here.

As only the terms “capital item” and “the owner” are defined for the purposes of regulation 113, all other terms take their normal meaning.

Supplies received at the reduced rate of VAT can form part of the value of a capital item and the VAT incurred can be part of the baseline input tax to be adjusted. They count full value in determining whether a capital item is established.

In refurbishment items all of the expenditure will normally be capital in nature. So the only issue is generally what elements are affixed.